The International Debt Crisis of Iraq

The two devastating wars fought unnecessarily by Iraq in the past decade, alongwith the UN’s ongoing economic sanctions, have ultimately led to the bankruptcy of the country. Iraq has thus moved from a once prosperous situation with estimated foreign reserves of US$35-40 billion and virtually no foreign debt to one with a foreign debt and obligations of almost US$700 billion. Obviously, Iraq’s prospects for economic recovery, prosperity, and its re-integration into the international community will depend largely on the kind of political, social, and economic reforms that its government can develop and implement. An attitudinal change on the part of the creditor nations towards Iraq’s indebtedness problem would also have a considerable impact on its growth and economic recovery. This paper analyzes Iraq’s external indebtedness problem and evaluates the applicability of the debt-equity swap as a means to relieve the severity of its debt burden. In spite of some drawbacks of debt-equity swaps, this paper demonstrates how a successful debt-equity swap program could not only play an important role in alleviating Iraq’s debt problem, but it could also aid in the revitalization of its economy.